Leery consumer spending still has restaurants in a vice

The greatest advice in history may have been the recommendation Henny Youngman fielded from his sketchy doctor: “I told my doctor, ‘Doc, I’m in agony! It hurts every time I do this,’” the king of one-liners says in one of his routines, flapping his hand like a damp dishrag. “How do I stop the pain?

“The doctor says, ‘Stop doing that.’”

That admonition comes to mind as the industry tries to end the big hurt that’s been dropped on the business by a sudden and still unexplained change in consumer spending. Theories for the downturn abound. Indeed, this issue of Restaurant Business includes proof that many consumers have been frightened by a presidential election right out of a Marx Brothers movie, and are slipping into a more conservative spending mode.

Another piece of research, from Bank of America Merrill Lynch, shows a direct correlation between restaurant traffic and the widening gap between foodservice and supermarket prices. The numbers support a thesis that the dramatic economic advantages of cooking at home are convincing Joe and Suzy Average to hesitate before dining out.

Both assertions are bull’s-eyes, but they’re overcomplications of the yellow light customers see when they scan a restaurant menu. It’s bright enough to warrant sunglasses, but the industry doesn’t notice because this time it’s the frog in the pot. Little by little, restaurants have turned up their pricing, to the point where an everyday meal carries a special occasion price. Beers selling for $8. Entrees in a place with foosball and flat-screen TVs going for $22. Sides for $8. Desserts priced at what a whole meal might’ve cost at a bar-and-grill restaurant pre-Great Recession.

Operators have forgotten that the modern restaurant industry was built on everyday affordability—a top-shelf meal at a painless price. The difference between what customers would spend to cook and how much they’ll pay for a restaurant visit is less important than the absolute tab. If a steak cost $50 at the supermarket, a restaurant version for $50.10 would still bomb. The inner gauge says, “Nope. A luxury.”

That explains why high-end chain restaurants—the places that cater to businesspeople on expense accounts—have fared much better than the full-service herd. It’s also why convenience stores are by all accounts scoring big gains in luring bargain hunters. Who wouldn’t pop for two hot dogs for a dollar?

Sure, chains have responded with near loss-leader pricing on some items. But those options can come across as cheap rather than a good value. It’s like offering a cubic zirconia as a replacement for a diamond. Yeah, it’s less expensive, but who wants second rate?

The industry has to ratchet back its prices by developing products that feature wholesome but dirt-cheap components. Ideally, they’re something that consumers wouldn’t prepare for themselves. The french fry is a perfect restaurant food—cheap to buy, but something the home cook isn’t likely to try. Ditto for soft drinks. Or guacamole. Or pizza.

The business needs a new burrito, Bloomin’ Onion, nachos, slider or chicken finger.

As for raising prices, maybe Youngman’s doctor should double as an economist. As he would say: Stop doing that.

Winsight is the only B2B media company providing actionable information and market intelligence to business leaders and suppliers in three of the fastest growing industries — convenience retailing, restaurants and noncommercial foodservice.